U.S. pays millions to Halliburton for excess trucks sitting idle in Iraq

12 Jan. 2006

WASHINGTON, Jan. 12 (HalliburtonWatch.org) -- Halliburton charges
millions of dollars to U.S. taxpayers for Mercedes trucks that sit idle
and unused in the Iraqi desert, an internal Pentagon memo obtained by
HalliburtonWatch reveals.

The memo, written on Sept. 16, 2004, by the Baghdad branch manager of
the Pentagon's Defense Contract Audit Agency (DCAA), reported that
Halliburton's KBR subsidiary "procures and retains excess vehicles"
under its troop support contract with the Army Corps of Engineers. The memo concludes that the excess vehicles result in "increased costs to the government."

The total value of the vehicles under review was $300 million and included both purchased and leased vehicles.

The findings comport with a digital photograph
obtained by HalliburtonWatch showing a large number of Mercedes trucks
parked permanantly at Camp Anaconda, Iraq. The photograph was obtained
from a source in the federal government who reported that the trucks
are, in the source's words, "idle." At a cost of $85,000 each, the
trucks shown in the photograph are worth at least a few million dollars.

It's unclear how many idle or under-utilized KBR trucks are stored in Iraq because Halliburton does not have adequate utilization records that could show how often each vehicle is used. "KBR does not have an adequate system for determining the utilization of vehicles," the DCAA memo states, adding that existing records appear to indicate "low utilization of vehicles."

The DCAA official to whom the memo was addressed, Bill Daneke, told HalliburtonWatch he was not authorized to comment on the issue, so he referred all inquiries to Lt. Col. Rose-Ann L. Lynch in the Office of the Assistant Secretary of Defense for Public Affairs, who referred HalliburtonWatch to Art Forster in the Congressional and Public Affairs Office of the Defense Contract Management Agency, who was not able to answer any questions and suggested a Freedom of Information request would be required to determine how the military concluded the issue. When HalliburtonWatch obtains a final conclusion, it will be posted here.

Halliburton spokesperson, Melissa Norcross, did not specifically deny the allegations in the memo. In an emailed response to HalliburtonWatch, she said, "For more than two years KBR has
been involved in numerous government audits relating to our work in
Iraq, and we continue to cooperate with our customer and the appropriate
government agencies to demonstrate that our work has been performed at a
fair and reasonable cost and within the appropriate bounds of government
contracting."

Pentagon auditors have repeatedly accused KBR
of artificially inflating costs under its troop support and oil
infrastructure contracts in Iraq and Kuwait. The military reimburses KBR
for all costs and then pays a fee of 1 to 7 percent of those costs. So,
as the company's costs go up, its profit from the military goes up, too. Critics say this
arrangement provides an incentive for KBR to inadvertently or
intentionally inflate costs that are ultimately billed to U.S. taxpayers.
For example, the DCAA reported in 2004
that KBR billed the government for 36 percent more meals than was
actually served to the troops while an internal KBR investigation found
that it had overbilled by 19 percent.

As with overestimating meals, it appears from the DCAA memo that KBR
may be overestimating the required number of trucks it needs to perform
its duties in Iraq. In order to confirm or deny this possibility, the memo says the
DCAA sought company records to verify how often KBR trucks are utilized.

When auditors requested the mission control logs, which reveal how often
each truck is used, KBR balked, saying it would be costly to compile
such data. Specifically, KBR said it would take 750-labor hours to
compile the data for 29 of the trucks under review, the memo reveals.

As an alternative, KBR offered the "vehicle dispatch records." But,
again, this proved insufficient since, as the memo states, "KBR only
provided dispatch records for 22 of the 29 selected vehicles, and six of
the records provided were maintenance logs, not dispatch logs, with no
mileage or other utilization information." Other dispatch logs requested
by the DCAA "would require a manual search" at several locations and
"would take time," KBR is quoted in the memo as saying.

DCAA also requested from KBR the contractually required vehicle
situation reports, which do not contain information about individual
vehicles, but rather the total number of vehicles at each location and
whether they are being used on any given day. When the DCAA told KBR
that the situation reports "appeared to indicate low utilization of
vehicles," the company responded by downplaying the accuracy of the
reports, which it described as "fluid" documents that are "changed
frequently" and were "never created for audit purposes."

In the memo, the DCAA official concluded: "The failure to properly
analyze the utilization of existing vehicles makes it impossible to
accurately estimate the number of vehicles needed for the contract,
resulting in increased costs to the government as KBR procures and
retains excess vehicles."

Another internal DCAA memo, first publicized by HalliburtonWatch, alerted the Pentagon that Halliburton's proposed purchase of 106 postal vehicles, for a total of $12.6 million, "was supported only by a memorandum" that contained "apparent math errors." It concluded that "the proposed quantities for some of the equipment purchases was not supported by an adequate analysis of the requirement." The memo, written on May 28, 2004, by the branch manager of the Iraq Branch Suboffice at Camp Arifjan, Kuwait, was addressed to Mr. Daneke.

KBR confirmed to the DCAA that 34 of the 106 postal vehicles were needed only for a "temporary surge" in troop numbers, but the memo chided the company for failing to consider leasing, rather than buying, the vehicles. KBR's Logistics Director agreed that temporary surges in troop numbers occur only once or twice per year. "Based on our discussion, he stated he would consider leasing the surge vehicles and revising the proposed quantities accordingly," the memo concludes.

Critics have complained that Halliburton purposely uses
an antiquated bookkeeping system in order to encourage inadvertent
overcharges. One KBR whistleblower testified
before Congress that the company's "manual accounting system" is
unnecessary and that, "There's no reason in the world why Halliburton
can't do real time data management."

In 2004, Halliburton admitted in an internal company memo that its cost controls for government contracts are "antiquated" and "weak" and its procurement "disorganized" and marked by "weak internal controls." The memo, which was leaked to the Wall Street Journal, contradicts the company's public statements which claim it has a "rigorous system of internal controls" for contracts in Iraq. The memo reportedly reveals the results of a study by 80 Halliburton managers who examined whether the company fairly charges the government for its contracting work. According to the Journal, the study is "a frank admission that [Halliburton's] critics are voicing valid concerns about the possibility of overcharges under the company's massive contract to supply U.S. troops." Halliburton said it initiated the study because of the "unprecedented barrage of inquiries, accusations and political innuendos."

Early last year, the Pentagon ignored heated criticism from its own auditors and reimbursed KBR for most of the costs that were disputed by the DCAA. In what the Washington Post called "a departure from normal policy," the military reimbursed KBR for $1.8 billion in costs which the company still cannot verify or substantiate. In May of last year, the Pentagon paid $72 million in bonuses to reward Halliburton for its work in Iraq and Kuwait.